Click here for live coverage of the 2026 state budget.
Daniel Mookhey has delivered his fourth budget against a turbulent backdrop.
Conflict in the Middle East has stoked inflationary pressures and cast a shadow over the global economy. The budget papers warn “geopolitical uncertainty remains elevated”.
At the same time NSW households have been hit by higher petrol prices and three interest rate increases so far this year.
Here are five charts from the budget that shed light on the state’s finances, the economic outlook and what lies ahead for households and consumers.
A $133 billion budget
Despite the economic headwinds the NSW government has allocated $133 billion to its core activities in the year ahead. That’s $3 billion more than the previous year and double the amount spent in 2014-15.
One reason for the rapid increase is COVID-19; during the pandemic, crisis spending was ramped up to deal with the health challenges and support businesses and households. Total spending by the NSW government jumped from $80 billion in 2018-19 (the year before the pandemic) to $119 billion in 2021-22, an increase of 49 per cent.
Solid growth in the NSW economy has underpinned the increased spending – during the past decade the state’s annual output has grown from $538 billion (2015-16) to $905 billion (this financial year) and is expected to pass the $1 trillion mark in 2028-29.
Where the money goes
The state’s largest expense is the health system, which includes the state’s public hospitals – spending on that purpose will be $36.3 billion in the coming financial year.
Next highest is education, including public schools ($26.2 billion), followed by expenditure on the transport system including trains, buses, ferries, light rail and roads ($17.4 billion).
About 45 per cent of NSW government expenditure goes on the wages and superannuation paid to the public sector workforce including teachers, nurses and police. Employee-related expenses, including super, will reach $60 billion in 2026-27.
Where the money comes from
The property market is set to weaken following recent interest rate increases, which have forced the government to downgrade expectations for some important sources of income.
Stamp duty collections are forecast to be $5 billion lower over the next four years than previously expected, while land tax receipts have been cut by about $3 billion over that period.
An improvement in other revenue streams, less sensitive to interest rate movements, including payroll tax and the GST will offset those losses to some extent.
Eight years in the red
The budget deficit next financial year will rise to $2.3 billion, double what was forecast in December.
One reason for the increase is cost-of-living relief announced in the budget, including the $561 million transport affordability package that will temporarily reduce the weekly road toll cap and freeze public transport fares.
The NSW government has now had eight consecutive deficits, the state’s longest period in the red in the modern era.
But a return to surplus is forecast the year after next.
“Despite the headwinds we have encountered, and the pressures we have endured, NSW remains on track to deliver a $1.1 billion surplus in 2027-28,” Mookhey said in his budget speech.
The string of deficits in NSW is another legacy of the economic turmoil of COVID-19 which did lasting damage to state finances.
Debt burden
There has been a sharp rise in borrowings during the past five years, driven in part by the state’s large infrastructure program.
The state’s gross debt will reach $178.5 billion this month, although that is $9.7 billion lower than what was projected at the 2023 pre-election budget update.
Gross debt will climb to about $219 billion by the end of the decade. However, the budget papers say the government aims to maintain gross debt at around 20 per cent of the state’s annual economic output.
The growth in borrowings during the past decade, coupled with higher global interest rates, has pushed up the cost of servicing debt.
“NSW is facing the highest interest expenses in the state’s history,” the budget papers said.
Interest expenses will be $7.7 billion this financial year and rising to about $11 billion by 2030.
Gloomy outlook
Perhaps the most worrying figures in the budget are the gloomy predictions for the state economy.
Only six months ago the NSW economy was forecast to expand by a robust 2.5 per cent next financial year and 2.25 per cent the year after. But both have been cut to just 1 per cent, well below the state’s long-run average.
Unemployment in NSW, now 4.5 per cent, is forecast to climb gradually over the next two years to 4.75 per cent in 2027-28.
There is danger unemployment could rise more than expected, especially if inflationary pressures persist and the Reserve Bank opts for additional interest rate hikes.
Start the day with a summary of the day’s most important and interesting stories, analysis and insights. Sign up for our Morning Edition newsletter.
From our partners
Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: www.smh.com.au
